How to open a company in Mexico as a foreigner

Mexico is a great place to start a business due to its strategic location and current macroeconomic conditions.

Mexico has implemented reforms and initiatives to attract foreign investment and create a favorable business environment. The country offers a stable political climate, intellectual property protection, and a robust legal framework that supports business growth and investment. Compared to other countries, Mexico offers competitive labor costs for employers. This makes it attractive for manufacturing and outsourcing operations. Additionally, Mexico has seen a huge increase in entrepreneurship and innovation in recent years, so foreign entrepreneurs can tap into a significant talent pool.

Business for Foreigners

If you are a foreigner, you can effectively own 100% of your business without having to partner with a local. You can even start a business without setting foot in Mexico, using a power of attorney. This is set out in Article 4 of the Mexican Law on Foreign Investment:

Foreign investments may participate in any proportion in the share capital of Mexican companies, acquire fixed assets, enter new economic activities or produce new product lines, open and manage enterprises, and expand or relocate existing ones, except in the cases provided for in this Law.

The rules on the participation of foreign investments in financial sector activities provided for in this Law shall apply without prejudice to the provisions of special laws for such activities.

For the purpose of determining the percentage of foreign investment in economic activities subject to the maximum participation limits, foreign investments that are indirectly contributed to such activities through Mexican companies with a majority of Mexican capital will not be calculated, provided that the foreign investment does not control the latter.

However, there are some sectors that exclude the possibility of employment foreigners.

Article 5 of the Mexican Foreign Investment Law lists the industries that are intended only for the Mexican state. These are:

• Exploration and production of petroleum and other hydrocarbons
• Planning and control of the national electric grid, as well as public services for the transmission and distribution of electricity
• Generation of nuclear energy
• Radioactive minerals
• Telegraph
• Radiotelegraphy
• Postal service
• Issuance of banknotes
• Coinage
• Control, supervision and monitoring of ports, airports and heliports
• Any other industries specified in the applicable legal provisions

There are also certain industries that are reserved only for Mexican citizens. These are set out in Article 6 of the Mexican Foreign Investment Law and include:

• Domestic land transportation of passengers, tourists and cargo (excluding messenger and courier services)
• Development banking institutions, in accordance with the provisions of the law governing the matter
• Provision of professional and technical services, as specified in the applicable legal provisions

Some industries also limit the percentage of foreign investment permitted. These sectors are listed in Article 7 of the Mexican Foreign Investment Law and include:

Up to 10% of foreign investment:

• Cooperative manufacturing companies

Up to 25% of foreign investment:

• Domestic air transport
• Air taxi transport
• Specialized air transport

Up to 49% of foreign investment:

• Production and sale of explosives, firearms, cartridges, ammunition and pyrotechnic articles (excluding the acquisition and use of explosives for industrial and mining activities, as well as the preparation of explosive compositions for use in said activities)
• Printing and publishing of newspapers intended for distribution exclusively throughout Mexico
• Series "T" shares in companies owning agricultural, livestock and forest lands
• Freshwater, coastal and exclusive economic zone fisheries (excluding aquaculture)
• Port pilot services for inland navigation in accordance with the provisions of the law governing this matter
• Shipping companies engaged in the commercial operation of vessels
• Inland and coastal navigation (excluding tourist cruises and the operation of marine dredgers and devices for the construction, maintenance and operation of ports)
• Supply of fuels and lubricants for ships, aircraft and railway equipment
• Broadcasting

Certain industries allow you as a foreigner to have an investment of more than 49% in a company. But you will need approval from the National Commission on Foreign Investment. These industries are:

• Port services that enable vessels to carry out inland navigation operations such as towing, mooring, and barging.
• Shipping companies engaged in the operation of vessels exclusively for offshore shipping
• Companies holding permits or concessions to operate public airfields
• Private educational services of preschool, primary, secondary, high school, college, or a combination thereof
• Legal services
• Construction, operation, and maintenance of public railways and public rail transport services

Legal Representative

Foreigners can own 100% of a company in Mexico. However, you will need a person to represent the company for the work. This person can be a foreigner or a Mexican citizen. However, if they are foreigners, they will need to obtain a Mexican residency visa, a Mexican tax ID, and a unique population registry code (CURP) to be able to represent the company.

Types of Companies

Public Limited Liability Company (Sociedad Anónima or SA)

This structure is popular with larger businesses that require significant capital and the protection of limited liability.

• The owners are called shareholders
• The number of shareholders can be unlimited
• The liability of shareholders is limited to their shareholding in the company
• The board of directors or sole administrator manages the company
• Can increase or decrease its share capital
• The shares are transferable and can be sold
• Having a full-time auditor mandatory

SA requirements:

• No minimum capital requirement
• Minimum of two shareholders required.
• Minimum of one director (sole administrator)
• Financial address
• Appointment of a state inspector — third party that monitors operations and represents shareholders’ interests
• Mandatory annual shareholders’ meetings

Limited Liability Company (Sociedad de Responsabilidad Limitada or S. de RL)

This structure is often chosen by smaller businesses and is easier to manage than an SA.

• The owners are called partners
• The partners’ liability is limited to their investment in the company
• The directors will be fully responsible for the management of the company
• There is no need to appoint a state examiner
• The company’s shares must not be freely transferable and cannot be traded on the open market

Requirements for an S. de RL:

• There is no minimum capital requirement
• Minimum two partners
• Maximum 50 partners
• Minimum one director (sole administrator)
• Financial address
• Mandatory annual shareholder meetings

Investment Promotion Corporation (Sociedad Anónima Promotora de Inversión or SAPI)

Ideal for investors who want the flexibility of a public company but with simpler requirements.

Company Formation Process

1. Choose a legal entity type

Before starting a business in Mexico, it is essential to determine the most appropriate structure for your company. There are many types of companies in Mexico to choose from depending on the nature of your business, the number of initial investors, and your management plans.

2. Protect Your Company Name

Once you have decided on a legal entity, you will need to ensure that your desired company name is available in Mexico and complies with Mexican regulations. The name must not infringe on trademarks or registered names, and must not be in use by another company.

3. Identify the Ultimate Beneficial Owner (UBO)

To comply with anti-money laundering regulations, you must identify your company’s UBO. This includes the individuals who own or control the company, whether directly or indirectly, and you may need to provide passports and ID cards for proof.

4. Determine the Foreign Investment Structure

If your company is considering foreign investment, you will need to describe how the investment will be structured. Be sure to include the percentage of foreign capital, restrictions or prohibitions, and provisions related to the admission of foreign capital in your company's bylaws.

5. Draft and Notarize the Articles of Incorporation

Next, you will need to draft the necessary articles of incorporation. This includes the articles of incorporation, the articles of incorporation, and any additional agreements or contracts. All of these documents must be drafted according to Mexican corporate law and notarized by a Mexican notary to be valid.

6. Register with the Public Trade Registry

Once notarized, it is time to register your company with the Public Trade Registry (Registro Público de Comercio). This officially establishes the legal existence of your company and provides public notice of its creation.

7. Obtain a Tax Identification Number and Electronic Signature

To register a company in Mexico, you are required by law to establish a fiscal address in Mexico and register your company with the Mexican Tax Authorities (Servicio de Administración Tributaria) to obtain your Tax Identification Number (RFC) and electronic signature. These can only be obtained by a Mexican or foreigner and are necessary for tax compliance, invoicing, and conducting business in Mexico. The following documents are required for registration:

• A certified copy of the incorporation document;
• Proof of the registered address of the business (usually a utility bill no more than three months old);
• Documentation verifying the identity of the registered agent with the appropriate authority.

8. Open a corporate bank account

Now it is time to choose a bank in Mexico to open a corporate bank account in the name of your company. This account should be used for financial transactions, salary payments, tax payments, etc. You must ensure that the bank account is opened by a legal representative who has the authority to open and manage the account.

9. Register with the National Registry of Foreign Investments

If your company will be involved in foreign investments, you will need to register with the Registro Nacional de Inversiones Extranjeras. This registry tracks foreign investment in Mexico and ensures compliance with investment regulations.

10. Register with the Mexican Social Security Institute (IMSS).

If you plan to hire employees, you will need to register your company with the Mexican Social Security Institute. This filing will also initiate the application and registration of the company with the National Institute of Workers' Housing. This ensures access to health care, pensions, and other social benefits for your employees.

11. Register with the State Tax Office

Finally, it's time to register with the local tax office of the state in which your company operates. This will allow you to comply with state tax obligations and operate legally within your jurisdiction.

12. Register Your Business with Local Authorities

Your business may not need to register with local authorities, depending on your location and the types of activities you do. However, depending on whether your activities have an “impact” on the local community, you may need a permit or license.

Tax System

The Mexican tax system is quite complex. Most businesses in Mexico pay up to nine taxes each year. These taxes are collected by various government agencies and include everything from property taxes to employment taxes. All businesses operating in Mexico must maintain separate tax books, file and file tax returns with all relevant agencies, and enter into agreements to pay or withhold taxes with each agency.

• Tax Year. In Mexico, the tax year follows the calendar year.
• Corporate Tax. All income earned by Mexican companies is subject to taxation, regardless of the nature of the business. The corporate tax rate is 30%. Foreign companies in the country are subject to the same tax system as local companies. However, there are some exceptions designed to attract foreign investors (for example, some states offer tax incentives). Keep in mind that unlike many Latin American countries, most taxes in Mexico are levied at the federal level. Moreover, companies may also be subject to a 10% employee profit sharing tax
• VAT. Locally known as Impuesto al Valor Agregado or IVA, the standard rate is 16% and applies to goods and services. Basic food items, water, farm supplies, books, and magazines are not taxed. There are also certain services and supplies that are exempt from VAT. These include real estate, land, financial services, insurance, cultural exhibitions and events.
• Payroll and Social Security Taxes. In some states, employers must pay an average of 2% in taxes on employee salaries per month. In other places, like Mexico City, they must pay 3%. The tax you pay on your salary is called Impuesto Sobre la Renta (ISR).
• Capital Gains and Real Estate. In Mexico, property taxes are divided into three categories. People must pay an acquisition tax when they buy real estate. This can be as much as 5.9%. There is a predial tax, which is an annual tax on the property paid to the municipality where the property is located. Then there is the capital gains tax, which also falls under the term Impuesto Sobre la Renta (ISR).